History of Health Care

Earliest record of coverage for health services: Congress establishes the U.S. Marine Hospital Service for seamen funded by compulsory deductions from their salaries.

First government health care plan

Pre-1900s

Life and health insurance offered mainly through fraternal orders and guilds to their members; doctors charge an annual fee.

Beginning of employer insurance

1850

First insurance policy for coverage of bodily injury due to railway or steamboat accident.

First accident insurance policy

1870-1889

Companies in several industries, including mining, lumber, and railroads, develop group industrial clinics with plans that prepay doctors a fixed monthly fee to provide medical care to employees for industrial accidents and common illnesses.

Employers begin to provide for employee healthcare

1899-1908

Aetna Life Insurance Co. and Travelers Insurance Co. offer a new type of health plan providing coverage for temporary total disability caused by all diseases except tuberculosis, venereal disease, insanity, or disabilities due to alcohol or narcotics. By the end of this period most of these restrictions are abandoned.

Beginning of private health insurance

1900

Life expectancy in the United States: 47 years

Population Statistic

1900-1909

Late 19th century treatments for infections are mastered – simple surgeries become commonplace in the home.

Medical science advances

Almost all hospitals are non-profit institutions founded by religious organizations or wealthy donors; they now begin charging for services.

Beginning of modern hospital system

Railroads begin providing employee medical programs.

Employer insurance expands

1902-1904

The first State workmen’s compensation law is enacted in Maryland; it is declared unconstitutional in 1904.

First workmen’s compensation legislation

1904

The American Medical Association forms the Council on Medical Education (CME) to standardize the requirements for MDs (Doctors of Medicine).

Medical standards rise

1908

Federal government establishes workmen’s compensation for its civilian employees.

World War I leads to groundbreaking treatments for control of contagious disease.

Medical science advances

1910

Beginning of organized medicine and AMA’s power: AMA bands together half of the nation’s 140,000 physicians.

Doctors organize

First group health insurance policy – Montgomery Ward and Co. seeks to protect its employees from financial hardship, creates plan that pays for lost worktime, not for medical treatment.

Employer group health insurance for lost wages

1911

President Theodore Roosevelt makes national health insurance one of the major planks of the Progressive party during his campaign for re-election (which he lost). Shortly afterwards, the American Association for Labor Legislation tries to enact the plan at state levels.

Presidential candidate and unions – 1st attempt at national health reform: national insurance

Wisconsin enacts the first state workmen’s compensation law to be held constitutional.

Expansion of workmen’s compensation (see 1908)

1912

American College of Surgeons (ACS) is founded to set standards for hospital accreditation.

Medical standards rise

1915-1916

State legislatures offer model bills for universal health insurance. All defeated by the following: insurance companies who want to preserve their burial and accident insurances, AMA physicians (despite initial support) who fear limits on their fees, pharmacists who fear the drugs the legislation provides for will undercut their services, and by Samuel Gompers, the head of the American Federation of Labor, who believes government insurance will weaken the unions’ appeal.

States call for state government health

insurance / Opposed by: Insurance Companies,

Doctors, Pharmacists, Unions (see 1911)

1919

Illinois study reports that citizens lose four times more wages due to sickness than the amount they spend treating the illness; people purchase “sickness” insurance to replace their wages rather than health insurance to cover costs of medical treatment.

Health care spending rises, demand for workmen’s compensation rises

1920-1929

Medicine is seen as science, demand for medical care grows, hospitals become accepted as treatment centers, inadequate medical schools close, the number of trained physicians decreases, fees and overall costs rise.

Medical standards rise

General Motors contracts with Metropolitan Life to insure 180,000 workers.

Employer insurance expands

1927

President Coolidge convenes committee to address growing health care crisis in terms of access and cost.

Urban families have average annual incomes between $2,000 and $3,000; Medical expenses for the average American family are $108, $261 if there are any hospital stays (14%).

Health care spending rises

First Health Maintenance Organization – a clinic for Los Angeles’ Department of Water and Power employees provides a wide range of health care services at a set rate.

Municipal government creates first HMO

First group hospital health plan (Baylor University Hospital in Dallas, TX) – offered to 1500 schoolteachers in order to stabilize the hospital’s cash flows; other hospitals soon follow, creating competition.

First group hospital health plan

American Hospital Association created. Community hospitals organize with each other to offer hospital coverage and to reduce competition, leading to formation of Blue Cross (see 1932).

The Depression leads to public interest in unemployment insurance and senior benefits.

American public wants more health protection, income security

1932

First private hospital coverage plan, Blue Cross (Sacramento, CA) – offers free choice of physician and hospital, reimburses for the treatment of low income patients. State legislation allows Blue Cross to act as a nonprofit corporation, tax-exempt and free from insurance regulations. Where these laws exist, the Blue Cross Plan expands to dozens of states.

The beginning of Kaiser Foundation Medical Care Plan: A physician at Kaiser Co.’s California dam construction site convinces the Kaiser owned construction workers’ insurance company to pay him in advance per employee for providing medical care on-the-job rather than send workers with serious injuries to medical facilities 200 miles away. This kind of prepaid care allows employers to better predict costs. Kaiser also arranges for voluntary salary deductions to cover off-the-job care for the workers and their families.

Employer insurance expanded to cover families at employees’ expense

1934

Hospital costs rise to nearly 40%

of a family’s medical bill.

Health care spending rises

The AMA adopts principles to protect physician right to set rates based on patient income and to supervise voluntary insurance; declares it unprofessional for doctors to seek profits in practicing medicine.

Doctors commit to independence from

private health insurance

1935

President Franklin Roosevelt bows to the AMA, the insurance industry and business and removes national health insurance from his proposal for Social Security Legislation before presenting it.

Social Security Act passes, enables states to raise revenue to care for the retired and the elderly, and to provide for the disabled, maternal and child welfare, public health, workmen’s and unemployment compensation.

Social Security Legislation passed to protect the vulnerable, includes legalization of workmen’s compensation

Origin of employer-based health plans: wage and price controls set up to control inflation during World War II make it difficult for employers to attract workers, leading companies to offer health insurance as a fringe benefit as a way to attract workers.

Employers begin to regularly offer health insurance

1939

CA governor proposes compulsory health insurance for those earning less than $3,000 a year, which at that time is 90% of the population. Leads to:

State government attempt at health insurance

1939-1946

The California Physicians’ Service (CPS) – the first prepayment plan designed to cover physicians’ services. These physician-sponsored plans adopt the income limit from the governor’s plan to capture public support for their own plan. AMA encourages expansion to other states; plans become known as Blue Shield, primarily covering hospital services. Blue Cross-like legislation frees these plans

from taxes,

from insurance company regulation,

from restriction on choice of physician;

also allows doctors to charge subscribers the difference between their actual charges (which they could vary by patient) and the amount for which they are reimbursed (see 1932).

Commercial insurance companies enter the health market based on the idea that the insured are employed and thus likely to be young and healthy. Commercial carriers are not subject to the same regulations that govern the non-profit Blue Cross and Blue Shield, and can charge higher rates for sick people.

Commercial (for-profit) insurance begins

Labor Unions fight to make the inclusion of health plans in worker contracts widespread.

Unions raise demand for employer health benefits

1940

12 million of the nation’s population of 132 million have health insurance.

Population Statistic

1942

Congress makes employer-provided health care tax deductible for employers: enrollment in group hospital plans goes from 7 million to 26 million, 20% of population

Hill-Burton Act passes Congress: requires that any hospital receiving federal funds has to offer free hospital care to the uninsured or unable to pay.

Congress requires hospitals receiving federal funds to treat everyone

Baby Boom begins with U.S. births up to 3.4 million from 2.8 million in 1945.

Population Statistic

1948

All states now have some form of workmen’s compensation

Expansion of workmen’s compensation (see 1935)

1949

Truman’s universal health insurance plan is defeated by AMA and Business lobby in the House of Representatives after series of campaigns portray plan as Communist, causing loss of public support.

National health reform plan defeated by: Congress, Doctors (see 1945)

U.S. Supreme Court rules that pension and insurance benefits, including health benefits, are to be considered part of “wages,” giving unions authority to

negotiate benefits for employees.

Government supports employer insurance

(see 1943)

Deductibles introduced for the first time: Liberty Mutual introduces Major Medical Insurance to protect individuals against extended illnesses or injuries by expanding basic plans’ (such as Blue Cross/Blue Shield) list of eligible hospital charges and extending their duration of coverage; funded through deductibles

Federal Government amends the Social Security Act and assumes responsibility for health care for the poor and becomes the primary payer for nursing home care.

Federal Government supports health care for the poor and elderly

Those who can afford it purchase private insurance. Over 1/3 of Americans with health insurance are covered by employer-provided plans; by the end of the decade, this becomes the common expectation of workers:

National health care expenditures are $12.7 billion, 4.5% of the Gross National Product. Overall, the # of those insured tops 190 million up from 20.7 million in 1940.

Health care spending and the number insured rises

Most states now bar group practices with prepaid monthly fees in favor of fee-for-service providers, due to 2 decades of AMA pressure.

Rise in fee-for-service due to AMA

Life expectancy in the United States: 68 years.

Population Statistic

1951

As a result of commercial carriers being allowed to charge lower premiums for healthy people, they overtake the nonprofit BlueCross/BlueShield in the insurance market.

For-profit insurance expands

Over 100,000 individuals and their dependents have Major Medical Insurance (purchased by employers or individually), which covers more medical expenses for longer periods of time. Over 80 million have basic health insurance.

Over 60% of population have some type of hospital insurance, typically for surgery, due to efforts of unions to broaden coverage in worker contracts.

Unions drive the demand for hospital insurance

1955

Jonas Salk develops polio vaccine.

Medical science advances

1957

Vision care benefits are introduced.

Insurance market expands

1958

75% of Americans have some kind of private health insurance.

Population statistic

1959

Dental care benefits are introduced.

Insurance market expands

1960-1969

The major medical carriers endorse expensive medicines, medical school enrollment doubles, the number of doctors who are full-time specialists increases (along with average physician salaries) from 55% to 69% (85-90% of med school graduates are choosing specialty medicine), and for-profit hospitals arise, leading to higher health care costs.

Build-up to Medicare: President Johnson devises elderly health plan that will reimburse hospitals for cost of service and “usual and customary” fee-for-service for doctors. Republicans want to exclude the middle and upper classes from this plan, but Democrats fear that then the program will be a “poor program for the poor”.

AMA wants government funded fee-for-service plan without cost controls.CHIP abandoned after Watergate and US House scandals, despite President Ford’s support.

President calls for National Employer Insurance / Opposed by Unions, Employers, and Doctors

1974-1984

John Hixson and Paul Worthington of the Social Security Administration (in a section that would later become the Health Financing Administration) develop the idea of health banks through which employer healthcare contributions would be deposited in employees’ individual savings accounts at financial institutions in order to pool loans for major medical needs. Hixson later becomes chief economist for the AMA, which during this time supports the idea.

choice in health plans: allows employees to set aside pre-tax income to pay for medical expenses in Flexible Spending Accounts.

Congress first approves Health Savings Accounts

1979

The World Health Organization eradicates smallpox.

Medical science advances

1980-1989

There is an overall shift toward private health care and corporate systems buying up regional hospitals.

Health care is increasingly privatized

1980

Congress, after a decade of lobbying by universities, passes the Bayh-Dole Act: promotes wider ownership in product development vs. previous open use of tax-payer funded research; benefits drug companies, universities and biotech firms.

Congress expands privatization of university research.

Estimate of average annual salary for cardiac surgeon exceeds $500k. Health care spending is now three times higher than in 1970, at $257 billlion, about 10% of GDP.

Health Care spending rises

1982

The Centers for Disease Control officially defines an increasingly common collection of symptoms and syndromes as AIDS.

AIDS enters the picture.

1983

President Reagan follows insurance company complaints that doctors are exploiting traditional fee-for-service billing, and curtails Medicare and private plan providers’ ability to charge patients varying fees per service; switches to “capitation,” prepaid fee per person/ diagnosis rather than fee per treatment.

Hixson associate John Goodman of the National Center for Policy Analysis and Richard Rahn, Chief Economist of the U.S. Chamber of Commerce, publish a plan to use Medical Individual Retirement Accounts to privatize Medicare; leads to development of Medical Savings Account (see 1974-84).

3/4 of American workers with employer-sponsored health insurance have traditional/indemnity/fee- for-service plan: subscribers can select any provider and seek reimbursement for bills sent to insurance companies (up to certain %) after deductible is met with no questions asked.

Employer insurance is largely fee-for-service

Massachusetts becomes the first state to pass a universal health care bill, though most of its reforms are soon repealed.

Managed care briefly slows down this growth by requiring 3rd-party pre-approval of all treatments, adding incentives for family doctors to not refer patients to specialists, utilization reviews of medical practices, and enforced discounts with hospitals.

Managed Care grows, temporarily curbing

spending

1990

Top 10 drug companies have profits nearing 25% of sales revenue. From 1960 to 1980, prescription drug sales were fairly static as a % of US gross domestic product; from 1980 to 2000, they tripled.

Drug companies make huge profits

The Human Genome Project is created.

Medical science advances

1991

The % of those with individual coverage who contribute to health care payments rises to 51% from 27% in 1979, with the average monthly premium ($26.60) 2.5 times higher than in 1983 ($10.13). For those with family coverage, 69% pay part of the cost up from 46% in 1980; the average premium in 1990 ($96.97) is 3 times higher than in 1983 ($32.51).

Health care spending rises

PPOs (Preferred Provider Organizations) grow due to fact care is paid for as it is received instead of with an advance scheduled fee. PPOs may also offer more flexibility by allowing for visits to out-of-network professionals. Participation in managed care reaches 33% of those with health care (17% HMOs, 16% PPOs) up from 14% in 1986 (13% HMOs, 1% PPOs) and 3% in 1980 (all HMOs).

Demand for Managed Care rises though it becomes largely fee-for-service through growth of PPOs

1992

Enrollment in HMOs reaches 39 million (18% of those insured), up from 2 million in 1970.

Demand for HMOs rises

1993

President Clinton proposes a national insurance Health Security Plan: all citizens would be enrolled through government-run regional alliances that have the power to regulate costs and quality of managed care.

8th attempt at national health reform(see 1969): national/regional insurance system

Food and Drug Administration creates rules that allow drug companies to advertise directly to consumers if such ads balance supposed benefits with possible risks. Because the FDA guidelines are not full-blown regulations, the agency does not have the power to fine or otherwise sanction drug companies for running misleading ads.

Drug companies begin to advertise to public.

1998

Traditional/fee-for-service plans drop to 14% of the health insurance market. HMO enrollment reaches 79 million (35%) of over 227 million insured (see 1988 and 1992).

offers prescription drug coverage to seniors and people with disabilities, starting in 2006;

relies on insurance companies to deliver the benefit to those on Medicare and over 6 million low-income elderly Medicaid subscribers without federal supervision;

Department of Health and Human Services is not allowed to negotiate prescription drug prices.Act also creates Medicare Advantage, which allows for HSAs and increases subsidies to insurers who offer private Medicare plans, currently 5.3 million people (across 285 contracts).

Maine passes the “Dirigo Health Reform Act” to establish a five-year plan to achieve universal coverage by 2009 via an expansion of public and private coverage.

State government attempt at statewide health coverage

Study finds more care does not necessarily lead to better health; 1/3 of medical treatments provide no apparent benefit.

Medical Research

2003-2004

California passes a “pay or play” employer mandate for businesses with 50 or more employees requiring them to either “pay” into a fund to provide coverage for uninsured state residents or “play” by providing coverage for their employees -repealed a year later by a ballot initiative sponsored by big businesses.

State government attempt at statewide health coverage

2004

GM cost for employee health benefits is about $5 billion/year, $1400 per vehicle manufactured (profit per vehicle is $178); Chrysler and Ford lose money on every car produced.

Health Care spending eats into manufacturing profits

Small businesses report health care costs as #1 problem.

Health Care spending rises

National Coalition on Health Care, an alliance of 100 of the country’s largest businesses, unions, health care groups and insurers, and grassroots groups, chaired by former Presidents Ford, Carter, and Bush, call for health care price controls and national health insurance.

Employers, Unions, Providers and

American Public unite for Health Care reform

HMO enrollment is down 12% from 1998 to 70 million. PPOs and other types of managed care cover most of working America and their families. Traditional / fee-for-service plans account for less than 5% of employer-sponsored health insurance.

Demand for HMOs shrinks though majority

still have managed care

Bush argues for a cap of $250,000 for the pain and suffering portions of medical malpractice awards to help hold down health-care costs though critics predict this will in fact increase spending.

President seeks cap on malpractice

awards

2005

Health care spending nears $2 trillion, more than 16% of GDP.

Health Care spending rises

Since 2000:

Health care costs are up 73%: average annual premium for family policy is close to $11,000 (25% of median annual salary); 2/3 of all families struggling to pay medical bills have insurance.

The number of uninsured is up more than 6 million, though 1 in 3 uninsured households have an annual salary of more than $40,000.

59% of companies with less than 200 employees offer health benefits, down from 68% (and compared with 60% of companies overall); more than 1/3 of these workers receive no health care cost contribution from employer.

More people lack health insurance as fewer businesses offer it or contribute to

costs, and at the same time, the insured struggle to deal with medical bills

The portion of Americans working for an employer that sponsors a health plan is 81% though only 74% of workers are eligible and only 62% participate, the lowest numbers since 1988. The reasons for this decline are that the majority has coverage through a spouse or other job, and an increasing number of employees cite the offered plan as too costly.

Fewer employees participate in their

employer’s health plans due to other

coverage or increased costs

Only 57.5% of children have health insurance through their guardian’s employer.

Medicare Prescription Plan (Part D) goes into effect. Two weeks into the year, states panic as low-income seniors complain of having lost their free Medicaid coverage and of facing problems at pharmacy counters.

Medicare Prescription Plan begins

Maryland passes Public-Private Partnership for Health Care for All.

State Government attempt at statewide health coverage

Massachusetts becomes the first state in which a Democratic legislature and a Republican governor agree on the need for universal healthcare, passing a reform package with both employer and individual mandates.

State Government attempt at statewide

health coverage

Vermont passes the “Health Care Affordability Act of 2006” covering most of the state’s uninsured.

State Government attempt at statewide

health coverage

GOP legislation to create Association Health Plans, federally regulated Small Business Heath Plans, reaches Senate debate after 11 years of efforts. Bill is filibustered by Democrats who fear the measure would allow insurers and small businesses to bypass state-mandated protections, and increase costs for firms with one or more sicker workers.

Congress fights over creation of health

plans for small businesses

Nearly 4.3 million births in the U.S. are reported, the largest number recorded since 1961.

Population statistic

2007

In State of the Union address, President Bush proposes citizens pay taxes on their employer-provided health care benefits, presumably paving the way for increased demand for tax-protected Health Savings Accounts with high insurance deductibles.

California and Illinois are considering universal health care proposals while Pennsylvania and other state governors are seeking ways to increase health care access and limit costs.

State Governments attempt at statewide

health coverage

Congressional Budget Office estimates that Medicare could save $40 billion over next 10 years if subsidies to Medicare Advantage insurers for doctor and hospital reimbursements were limited to levels of the rest of the program (or save $54 billion in 5 years if eliminated altogether). About 1/5 of elderly Medicare enrollees are in private plans – 8.3 million across 604 contracts (see 2003).